Europe Heads Into Winter With Gas Storage at a Two-Decade Low

Europe is entering winter with one of the lowest levels of natural gas storage in the past two decades. The conflict in the Middle East has caused a significant reduction in liquefied natural gas (LNG) supply from Qatar, leading to skyrocketing gas and LNG prices in Europe and Asia. European benchmark prices have reached multi-month highs, while LNG prices have been the highest in three years.

These high prices have discouraged stockpiling for most of the summer, leaving Europe in a precarious position as it prepares for the winter months.

The war in Iran has further exacerbated the situation, trapping Qatari LNG cargoes behind the Strait of Hormuz and intensifying competition for the dwindling global LNG supply. European policymakers and gas network operators were aware they needed to increase spring and summer purchases to fill storage sites, but the Iranian conflict left them scrambling for supply amid high prices and fierce competition.

Currently, Europe's storage levels are about 63% full, which is the lowest level for this time of year in nearly two decades and well below the five-year average. The Netherlands is the first EU member state to warn it will miss its target for gas storage ahead of the winter. While security of supply is not at immediate risk, Europe is expected to hope for a milder winter, just as it has in the past four years.

The high gas prices and uncertainty about supply prospects have had a direct and painful effect on gas prices, with European benchmark natural gas prices reaching the highest since 2023. The LNG squeeze and the uncertainty about supply prospects could lead to even higher prices as winter approaches, and Europe still struggles to build up sufficient inventories.

Analysts say that Europe will likely miss even its softest flexible target to have storage 75% full on November 1, raising the prospect of forced buying and increasing upside risk for gas prices.